How Bank of the West applied business process management to commercial loans for an improved customer experience.

When you’re a banker with a customer seeking a multimillion-dollar business loan, you don’t want to keep that customer waiting any longer than necessary.

As Bank of the West broadened its commercial banking business while simultaneously expanding geographically, its loan process began to bog down. Headquartered in San Francisco with locations throughout the western U.S., the bank recently began pushing east—it now has 700 branches and commercial banking offices in 19 states, including Iowa, Wisconsin and Kentucky.

“When we made these acquisitions in the Midwest, that added a lot more offices for us,” says Michael Begovich, Bank of the West’s senior vice president for credit administration. As a result, loan paperwork spent more time in interoffice mail before making it to his office in Sacramento. “Often, they would send faxes, then follow up with paper, so you would actually be handling it a couple of times,” he adds.

Transmitting that information electronically would be more efficient, but the question was how to do it most effectively. “It took us a good part of a year just to define the scope of what we were trying to get done,” Begovich says.

The commercial credit authorization system was developed by the bank, with help from consultants at Brickwalk, a San Francisco-based company that combines business process management and document management technologies from IBM’s FileNet division with business rules management from ILOG. The bank uses FileNet to manage loan forms, as well as the workflow for routing them to bank officers who must sign off on loans before they can be approved. ILOG’s JRules automates some of the decisions concerning whose approval is required and whether a loan meets the bank’s credit and compliance requirements.

The system, which began as a pilot project during summer 2007, was fully deployed by late September, according to bank officials, who say they’ve cut credit authorization times from three to five days down to just a few hours. By streamlining the process, bank executives also expect to save about $1.5 million over the next five years.

Given that the commercial loans handled by the system start at about $5 million and range up to about $100 million, the bank must make sure its loan officers understand the health of the businesses requesting loans. So Bank of the West has loan specialists in agriculture, real estate and other fields.

This hands-on approach is in contrast to consumer lending, where pre-approved credit cards are often issued based on a simple credit-score calculation. Bank of the West is one of a handful of lenders using the consumer-focused ILOGrules-management technology in the commercial lending space, according to Bruno Trimouille, ILOG’s director of field marketing for the Americas. Based on work with several joint customers, IBMand ILOGare now marketing the combination of FileNet and JRules specifically for the commercial loan market.

For Bank of the West, which has some $60 billion in assets, the value of the new lending system is in automating routine decisions within the process while ensuring that the same rules are followed across all the bank’s branches. Changes in rules, such as lowering the required credit rating for a loan, can be simulated to test impact prior to deployment.

One advantage of using a separate business rules-management system is that the rules are segregated from other programming code and spelled out in a syntax that reads like English, making them easier for business managers and auditors to review. A typical business rule for compliance would apply a series of “if-then-else” rules to determine whether a critical regulatory issue had been detected or should be logged as a non-critical deviation from bank guidelines.

While loan officers retain most of the responsibility for lending decisions and have the authority to make exceptions to some rules, the tracking of those decisions is an important benefit of the new system, Begovich says.

“We need to be able to document the fact that an exception was made, and the frequency of it,” he says.

David F. Carr is the Technology Editor for Baseline Magazine, a Ziff Davis publication focused on information technology and its management, with an emphasis on measurable, bottom-line results. He wrote two of Baseline's cover stories focused on the role of technology in disaster recovery, one focused on the response to the tsunami in Indonesia and another on the City of New Orleans after Hurricane Katrina.David has been the author or co-author of many Baseline Case Dissections on corporate technology successes and failures (such as the role of Kmart's inept supply chain implementation in its decline versus Wal-Mart or the successful use of technology to create new market opportunities for office furniture maker Herman Miller). He has also written about the FAA's halting attempts to modernize air traffic control, and in 2003 he traveled to Sierra Leone and Liberia to report on the role of technology in United Nations peacekeeping.David joined Baseline prior to the launch of the magazine in 2001 and helped define popular elements of the magazine such as Gotcha!, which offers cautionary tales about technology pitfalls and how to avoid them.